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Banks witness RAJANLEELA

August 6, 2014

RBI won't keep interest rates high longer than needed

RESERVE Bank of India ( RBI) governor Raghuram Rajan gave no respite to borrowers on Tuesday by maintaining status quo on key policy rates for the third time as expected saying that vigilance is required on the impact of deficient monsoon on prices. The only relieving factor was the cut in the statutory liquidity ratio ( SLR) by 0.5 per cent, which would release another ` 40,0000 crore for extending loans.

SLR is the portion of deposits that banks are required to invest in government bonds and hence these funds cannot be given out as loans to corporates and individuals for buying homes and cars. The reduction in SLR by 0.5 per cent to 22 per cent of total bank deposits will release funds that are otherwise stuck in government bonds.

Rajan said that there are upside risks to inflation in view of the uncertain monsoon and its impact on food production as also volatile international oil prices.

Rajan hinted at more SLR cuts in the future in tandem with government action on the fiscal deficit to help lenders plan for the long- term. " This is an antiinflation fight, and let us win it because that will create the best conditions for sustainable growth," Rajan, who raised the key rates twice since assuming office last September, said.

Sounding confident of achieving the inflation targets, Rajan said, " I think the expectation that we will confront and deal with inflation is much stronger now than it was earlier." Consumer price index inflation dropped to 7.31 per cent in June from 8.59 per cent in April.

Noting that foreign investors are worried over high inflation, Rajan said one of the major concerns that investors have is whether RBI will take away the benefits of the Indian growth story from them by inflating economy and thereby depreciating the rupee. " No, we have no intent of doing that. We want to bring inflation under control and more like the inflation in other countries so that the rupee is not seen on a continuously weakening path," he said.


RBI has initiated inspection of the book of accounts of Syndicate Bank, whose CMD S. K. Jain was recently arrested by the CBI for allegedly taking ` 50- lakh bribe ; Admitting that there are governance issues in the public sector banks, RBI governor Raghuram Rajan underlined the need for improving transparency in sanction of loans ; Rajan said that there is an inspection under way of Syndicate Bank but ' one has to be very careful about extrapolating this issue to entire banking system without thinking further through' ; The Syndicate Bank episode does raise the troubling issue, Rajan said. It is important for an enforcement agency to ensure full investigation is done ; A ' balance has to be maintained and we have to be also careful'. It should not be a witch- hunt which then stalls the entire credit process, he said

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Source: Mail Today (India)

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